ttack on speculation in the Spring of 1994, in the guise of inflation fighting, should warn Congress and the White House that a thorough revamping of the Federal Reserve and our financial regulatory institutions is long overdue. We need a more powerful central bank, with tools that can effectively control money and credit whether its growth originates in the banks or other financial institutions. We need a separate, independent, consolidated financial regulatory agency that can blow the whistle on excessive speculation and other behavior that undermines productive investment, economic growth, price stability, and a stable financial system. The Clinton Treasury proposal for revamping bank regulation offers an opportunity to join anti-inflationary monetary policy with bank regulation. It urges creation of a unified Federal Banking Commission to regulate the activities of banks and bank holding companies. The Federal Reserve stood in vehement opposition (see Greenspan, March 2, 1994, and Reinicke, 1994), joined en masse by the major commercial banks. The Fed's less than exemplary regulatory role in the wave of bank crises since the late 1970s does not lend much support to its demand to retain its authority and power to regulate major banks, as a function complementary to, and supportive of, monetary policy. Nonetheless, in an ideal world, I strongly believe that an effective central bank should have broad authority and effective power to regulate large banks and bank holding companies. It should intervene forcefully when those institutions are putting the safety and soundness of the money and credit system at risk. Only when armed with this authority and power to intervene forcefully in reining in the high-risk and speculative activities of huge multinational banks and financial institutions can the Fed effectively restrain money and credit growth in boom periods like the 1980s. But, with that authority and power must also go a heavy res...
